Australian pensions investor sees trillion-dollar infrastructure boost from energy shift | Alternatives

Infrastructure investment is becoming mainstream, attracting more capital and competition, and offering substantial opportunities due to the global energy transition and government policy support, according to Kyle Mangini, global head of infrastructure at IFM Investors.

Institutional investors will increasingly recognise infrastructure as a standalone asset class due to growing considerations for relative risk and return, according to IFM Investors, which manages around $142 billion in assets and is wholly owned by a group of Australian pension funds.

The firm published its Global Infrastructure Outlook for 2024 last week, which pointed out that shifts in the sector could result in billions in potential investments.

“Infrastructure is a well-established asset class in Australia and Canada, though it’s often not standalone elsewhere,” Mangini said at a media briefing. “Regardless of economic conditions, infrastructure has consistently delivered robust returns for investors’ portfolios.”  

SEISMIC SHIFTS

The recent trends are observable globally and outline certain sectors as being poised for remarkable growth over the next decade, in some cases as a result of emerging technologies.

Kyle Mangini,
IFM Investors

“Traditional infrastructure will continue to demand significant investment for population growth and renewal,” Mangini told AsianInvestor.

“The digital sector, including AI and data centres, is witnessing a major transformation—its growth is truly exponential. These digital investments require substantial energy infrastructure, which is very energy-intensive,” he said.  

Mangini noted a demand for investment in renewable energy to support digital infrastructure, based on a desire to be as green as possible.

In addition, the transition towards decarbonisation represents another massive shift towards the asset class.

“According to estimates by management consultants, which seem to increase annually, we’re looking at around $9 trillion a year in investments. Even if those figures are only partially accurate, the scale of investment is astronomical,” said Mangini.

“So, we have the enduring underlying need for capital in traditional infrastructure, the expanding investments in digital infrastructure, and the seismic shift towards decarbonisation.”

POLICY BOOSTS RENEWABLES

Beyond the inherent resilience and emerging factors supporting the appeal of infrastructure as an investment, government policy is shaping market trends towards renewable energy across the globe, Mangini added.

“There’s a growing recognition of the critical role policy plays, especially in connecting renewable projects and addressing transmission challenges, which are inherently governmental decisions,” said Mangini.

“We believe private sector development of projects to collect electrons is viable, but the movement of electrons requires government-driven policy, which is a fundamental factor in driving a decarbonisation agenda,” he said.

One major piece of legislation was the US Inflation Reduction Act (IRA) which allocated $369 billion to clean energy and climate initiatives, among other infrastructure investments.

The IRA revamped tax incentives, favouring domestic manufacturing and job creation, and has drawn $110 billion in investments into the US within a year, according to IFM’s outlook report.

“The US Inflation Reduction Act is a significant piece of legislation for spurring investment, and its success has prompted other governments to consider similar measures,” Mangini said.

IFM Investors has also become increasingly positive about policy development in Australia and other countries.

“Since our last report, there has been a concerted effort to address bottlenecks and to shape policies that facilitate investment decisions with long-term benefits in mind. While the pace of progress could always be faster, the focus on overcoming challenges is stronger than ever,” Mangini said.

Australian policy fundamentals with regard to renewables are solid, he said, and the mix and the amount of investment are functioning well.

“The risk lies in how quickly and efficiently the policy can be addressed,” Mangini said. “There’s a clear need for investment and transition.”